Fundamental Analysis

Gold Rebound Amid Bargain Hunt, With a Bleak Outlook

  • Gold rebounded from a momentary drop below the psychologically significant $1,900 level.
  • The number of Americans filing new claims for unemployment benefits saw a weekly decline.
  • The US economy expanded even faster than previously estimated in the first quarter.

Gold rebounded on Thursday from a momentary drop below the $1,900 psychological level, which was triggered by a series of strong US economic readings. Following the release of the data, prices dipped below $1,900 for the first time since mid-March. 

This drop was supported by a 0.4% strengthening in the dollar index, which made gold less appealing to international buyers. Concurrently, benchmark 10-year Treasury yields increased.

David Meger, director of metals trading at High Ridge Futures, noted that the decline from $2,000 to $1,900 would attract some bargain hunters, contributing to the rebound in gold prices.

US jobless claims (Source: Labor Department)

US jobless claims (Source: Labor Department)

Unexpectedly, the number of people filing new claims for unemployment benefits saw a weekly decline. The continued strength in the labor market has defied recession predictions by driving wage growth.  At the same time, the US GDP growth in the first quarter increased to a 2.0% annualized rate, up from the previously reported 1.3% pace. 

Additionally, the strength of the labor market, evident in the significant decrease in US jobless claims last week, was a supporting factor for the gross domestic product in the first quarter. It also led to a decline in gold prices. 

Phillip Streible, chief market strategist at Blue Line Futures in Chicago, remarked on the double impact of these factors on the price of gold and the unhelpful stance of hawkish central banks.

Federal Reserve Chair Jerome Powell conveyed that most policymakers at the central bank anticipate raising interest rates at least twice more by the end of the year. This is because of a tight labor market and US inflation exceeding the 2% target.

Financial markets have factored in a 25 basis points rate hike at the Federal Reserve’s upcoming policy meeting on July 25-26, as indicated by the CME Group’s FedWatch Tool.

While gold is commonly regarded as a hedge against inflation, the prospect of rising interest rates diminishes the appeal of non-yielding bullion. Based on current rate expectations, gold is poised to conclude the quarter with negative performance for the first time since September 2022.

Traders eagerly awaited the release of May’s personal consumption expenditure data, which serves as the Federal Reserve’s favored inflation gauge.